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6/27/11

Outside: The Town Seethes A Disquieting Heat

Inside: Blinds drawn waiting for gunfight in the street...


This summer will be a watershed moment for Arizona in the sense that many more people will accept the reality of the fundamental economic and social problems we face in our state. These are essentially the same as the rest of the country except we have economic indicators that seem technically not so bad but are deeply rooted in our almost total dependence on growth by continuous construction and real estate investment. The saloon brawl is over, egos and finances have been bruised, the stockmen and gamblers have retreated to their gathering places and all is quiet in town for the moment, waiting...

On Labor Day 2009 I did a video blog "The Economy and Me: My Hometown, Phoenix AZ" in which I discussed the fundamental problems of our state. On March 17, 2010 I wrote a blog "Phoenix Economic Crisis in Six Paragraphs" that outlined six fundamental problems we face. Two days later I wrote Part Two "We Will Still Need To Wear Shades" of how these six underlying points needed to be addressed if we were going to restore ourselves. These six essential problems still exist and actually were postponed due to 2010 being a year of respite where the inevitable was forestalled by loose money policies of the Federal government.

The points are:

  • Residential Mortgage/Lender Crisis
  • Unemployment/Underemployment
  • State Government Insolvency
  • Commercial Real Estate
  • Immigration and Population
  • Denial and Acceptance

These points remain essentially the same although some events over time have modified or accelerated them. The underlying problem to everything is simple: too much debt and the only way to resolve any of these points is deleveraging and bringing down the debt load of governments and individuals. The standoff between debtors and lenders cannot be forestalled any longer, the moment of who draws guns first has arrived.

The Real Estate problem, both Residential and Commercial along with the Mortgage/Lender Crisis, is heading for a Double Dip that is far worse than the first. At what point people are on the Denial and Acceptance continuum depends on what position they hold in the market. There is not much to be said that hasn't already been said on this topic except that City of Phoenix core has stayed relatively stable to what it had already dropped to. The city is ringed by cheaply built cookie cutter suburbs, mostly sub-prime, that are falling apart and much more underwater than residential and commercial real estate in Phoenix. The entire metro area will not escape another drop though with a few small exceptional pockets.

Unemployment and Underemployment is our most vexing problem. Although our numbers are slightly lower than the national average we're actually in worse shape. Realistically unemployment is somewhere between 15% and 25% but difficult to gauge since we do not have a stable long term population and an inept Local Census Bureau operation lacked credibility in being able to account for that with any semblance of accuracy. Those that are employed or underemployed are primarily in low wage jobs, have received little pay increases and are paying higher health insurance premiums making net pay lower. The jobs we have lost are gone and will not be coming back. This summer what businesses that have not died or fled the state, either because they are teetering or see no future here, will either be killed off or fly the coop. Some of the things that are against us now may very well be what saves us, such as inexpensive, plentiful commercial real estate and a hard working low wage labor force that is known for developed customer service skills.

Our State Government did a good job of balancing a budget the first year of this Legislative Session but the way Arizona government is organized, the burden falls on the counties, cities and towns that for the most part are acting in denial. Eventually they will have to cut services since the tax revenue provided to them by the state simply is not coming in. The political class and bureaucracies of Phoenix and Prescott are particularly guilty of being foolish and unrealistic with their expectations. They continue to operate as if the taxpayers can afford to subsidize their relatively luxurious salaries, benefits and are forging ahead with unrealistic projects and services. The police and fire unions will eventually have to capitulate on salaries, benefits and pensions along with "double dipping" into the system on all levels will have to cease.

Immigration in the form of illegal immigration has slowed by legislation well known as SB1070 but it certainly has not stopped. Our population both illegal and legal has gone underground; much of the legal population of all ethnic groups cannot afford to be out and about as they once did. Significant segments that do are spending borrowed money which also means borrowed time and will end sooner rather than later. We have a high student population due to the wide variety of educational institutions, especially in Phoenix, that traditionally have drawn positive impressions of the state and they either stayed or spread the good word when they left. Now they are just leaving since we are unable to offer them good employment at high wages to pay their colossal student indebtedness back. We are slowly building a strong solar industry which will require us to educate our population in that area as well as other industries we are gradually establishing.

We are in the same position I stated in my video blog of Labor Day 2009. It haunts of an era gone by of the old western town before there is a standoff. Everyone has gone inside, locked the doors and drawn the blinds hoping nothing will happen but knowing that something will. Some are in acceptance and others are in denial. What will occur is a white hat and a black hat representing the debtors and the loan holders, who is wearing what hat depends on point of view, will have a gunfight and one of them will lose triggering off other bullets to fire. When it's all over the dust will eventually settle and the town will inevitably come out and life will begin again. It will take time to reshape what we have and into something more sustainable and substantive but there is every reason to believe Arizona has all the basic elements needed to get fundamentals right again.

http://www.youtube.com/watch?v=FbCARgTdin8&hd=1